Table of Contents
Auditing Construction Contractors1
| Introduction | 1 |
| Areas of Audit Interest | 1 |
| Audit Planning | 1 |
| Understanding the Contractor and Its Environment | 3 |
| Understanding Audit Risk | 6 |
| Understanding Contractor Controls | 8 |
| Controls for Estimates and Bids | 8 |
| Controls for Cost Plus Pricing Arrangements | 9 |
| Controls for Fixed Fee Pricing Arrangements | 10 |
| Subcontractor Controls | 10 |
| Materials Controls | 11 |
| Labor Controls | 12 |
| Asset Tracking | 12 |
| Equipment Controls | 13 |
| Percentage of Completion Controls | 13 |
| Change Order Controls | 13 |
| Billing Controls | 14 |
| Budget Controls | 14 |
| Job Closure Controls | 15 |
| Assessing the Risks of Material Misstatement | 15 |
| Materiality | 19 |
| Evaluating Identified Misstatements | 20 |
| Audit Procedures Specific to Contractors | 21 |
| Accounts Receivable | 21 |
| Assets Linked to Contracts | 23 |
| Billing Collectability | 23 |
| Cash Flow Issues | 24 |
| Contract Guarantees, Cancellations and Postponements | 24 |
| Contract Changes | 24 |
| Contract Costs | 24 |
| Geotagged Jobsite Evidence | 25 |
| Gross Profit Margins | 25 |
| Income Recognition | 26 |
| Interim Audit Procedures | 26 |
| Job Site Visits | 26 |
| Management Representations | 26 |
| Retentions | 27 |
| Subcontractor Liabilities | 27 |
| Surety Bonding Analysis | 29 |
| Unapproved Change Orders and Related Claims | 29 |
| Auditing Contractor Estimates | 30 |
| Management Bias | 30 |
| Auditing Activities Related to Accounting Estimates | 30 |
| Using the Work of an Auditor's Specialist | 32 |
| Consideration of Fraud in the Audit | 33 |
| Issues Impacting the Auditor's Report | 37 |
| Developing Audit Documentation | 37 |
| Summary | 38 |
| Review Questions | 39 |
Answers to Review Questions41
Glossary44
Index46
Course Details
Author: Steven M. Bragg, CPA
Steven Bragg, CPA, has been the chief financial officer or controller of four companies, as well as a consulting manager at Ernst & Young. He received a master’s degree in finance from Bentley College, an MBA from Babson College, and a Bachelor’s degree in Economics from the University of Maine. He has been a two-time president of the Colorado Mountain Club, and is an avid alpine skier, mountain biker, and certified master diver. Mr. Bragg resides in Centennial, Colorado. He has written more than 300 books and courses, including New Controller Guidebook, GAAP Guidebook, and Payroll Management.
Publication/Revision Date: 6/14/2026
Course Exam Questions (online): 15 (multiple-choice)
Program Delivery Method: NASBA QAS Self-Study
Available Formats of Course Text: Downloadable PDF, Printed/Mailed
Course Level, Prerequisites, and Advance Preparation Requirements
| License | Course Level | Prerequisites | Advance Preparation Requirements |
|---|
| CPA | Overview | None | None |
* This program is appropriate for professionals at all organizational levels.
Sponsor ID Numbers
National Registry of CPE Sponsors I.D.: 107615
State CPA Board Sponsor ID Numbers (where applicable)
Florida Division of Certified Public Accounting: 0004761
Hawaii Board of Public Accountancy: 14003
New York State Board for Public Accountancy: 002146
Ohio Accountancy Board: CPE .51 PSR
Pennsylvania State Board of Accountancy: PX178025
Texas State Board of Public Accountancy: 009349
Learning Objectives
As a result of studying the course material, you should be able to meet the objectives listed below:
- Recognize why an audit strategy is needed, and what it controls.
- Identify the issues associated with the environment in which a construction contractor operates.
- Specify the risk assessment steps associated with the audit of a contractor.
- Recognize when a contractor's internal audit function can be used by the auditor.
- Identify how an auditor can reduce the audit risk for a construction contractor audit.
- Specify the accounting controls that a construction contractor might use.
- Recognize when a misstatement is considered to be material.
- Identify the actions that can be taken to reduce detection risk.
- Specify the events or conditions that indicate the presence of a risk of material misstatement.
- Recognize the audit steps that are specifically associated with the audit of a construction contractor.
- Identify the areas in which an auditor may choose to hire a specialist when auditing a construction contractor.
- Specify who is responsible for fraud prevention and detection.
